Smart Money On Microsoft

If you’ve been holding off on buying Microsoft stock until the company’s antitrust appeal is over, you might want to consider putting your money in a long-term interest-bearing account.

As for the software giant actually being ripped in half — I don’t recommend putting money on that unless you like playing the long odds.

All the euphoria Microsoft-haters experienced four months ago, when U.S. District Judge Thomas Penfield Jackson found the software Goliath in violation of antitrust law, has lately subsided into a sort of helpless angst.

Following Judge Jackson’s dramatic order to split the company in two, Microsoft embarked on a familiar sojourn into the appeals process. Microsoft has a history of putting itself in a better legal position on appeal, and that’s what has happened in this case. All the momentum now belongs to Bill Gates and company.

From Fast Track to Slow Lane

Last week, Microsoft scored its biggest victory since Judge Jackson’s decision when the Supreme Court referred the case to the lower court — a move U.S. Department of Justice (DOJ) lawyers bitterly opposed. The DOJ wanted to bypass the appellate court, undoubtedly because it has been friendly to Microsoft in the past.

Earlier this week, Microsoft asked the U.S. Court of Appeals for the District of Columbia to approve a lengthy, drawn-out schedule for hearing the case.

The Department of Justice countered, calling for a fast disposition of the appeal. The schedule will probably land somewhere in between the two proposals, but legal scholars agree that the case could take as long as two years to decide.

Since Judge Jackson put a hold on the breakup order and other restrictions he imposed, Microsoft is free to conduct business as usual, pending the appeal. So in addition to the favorable philosophical leanings of the court, the company has acquired another ally of the monopolist. Time is on its side.

Reagan and Bush Appointees

The District of Columbia court is the same appellate court that overturned Judge Jackson’s preliminary injunction against Microsoft, which would have required the company to stop bundling its Internet Explorer browser with the ubiquitous Windows operating system.

Four of the seven judges who will sit on the appellate panel — Douglas Ginsburg, Stephen Williams, David Sentelle and Raymond Randolph — are conservatives who were appointed by either Ronald Reagan or George Bush. The other three — Harry Edwards, David Tatel and Judith Rogers — were appointed either by Jimmy Carter or Bill Clinton.

Ginsburg, Williams and Randolph have historically opposed meddling in the affairs of the corporate world. They typically reject economic regulatory controls in favor of letting the marketplace dictate restraints.

But Microsoft’s stalling tactics in the appeal process may have more to do with the presidential election than the makeup of the appellate court panel. If George W. Bush is elected president, Microsoft will have its ultimate ally. This outcome is what the company is hoping for, and so far, its strategy seems to be working well.

Corel Investment — Cagey Maneuver

But Microsoft isn’t sitting on its mouse and counting on the appeal process to drag on. The company’s recent $135 million (US$) investment in the ailing Corel is viewed with cynicism by some observers, who perceive it as an attempt to dodge monopoly charges by keeping software competition alive.

You may recall Microsoft’s $150 million investment in another struggling rival, Apple Computer Corp. That was in 1997 when Apple was in financial straits and also — not by coincidence — Microsoft was facing preliminary investigations into its business practices.

Microsoft obviously benefits from the Corel investment in other ways, but you can see the legal department’s stamp of approval all over the deal.

Remedies May Be Obsolete

Antitrust law is difficult to apply under the best of circumstances, and that difficulty is exacerbated in the fast-moving, high-tech world. Alan Greenspan once wrote that antitrust is a “world in which the law is so vague that businessmen have no way of knowing whether specific actions will be declared illegal until they hear the judge’s verdict — after the fact.”

That applies to the courtroom as well, where such terms as “unfair trade practices” and the word “monopoly” itself are hard to pin down with legal precision. Most experts concede Jackson’s findings of fact are flawed and open to differing interpretations. And if findings of fact are flawed, the conclusions of law that follow are even more vulnerable.

Jackson himself is on record as saying everything he did in the trial is vulnerable on appeal.

Even if the appellate review eventually upholds Jackson’s findings, Microsoft can scream bloody murder about the remedies, arguing that the new economy marketplace will likely change so radically in two years that today’s remedies will be irrelevant or inappropriate. And who better to influence the marketplace than Microsoft?

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